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| This is my final column since I accepted a full-time job offer
on Friday. I won't be starting my new job until May 15, but I need to start
winding down all of my entrepreneurial efforts and get back into the mindset
of once again being an "employee" at a big company. Update 6/4/06: I will be occasionally posting brief comments on my blog at http://finaxyz.blogspot.com. -- Jack Krupansky |
(Updated since Saturday -- changes marked with [ * ])
Microsoft took the brunt of the blame on Friday for the market decline. The news from Microsoft wasn't anywhere near as "bad" as some commentators suggested. In fact, I suspect that within a week or two there will be another set of commentators telling us that people overreacted and that Microsoft's spending will only increase the company's future value. Mostly the decline was simply an opportunity for traders and short-term speculators and other members of "The Volatility Crowd" to jerk the market around. Microsoft stock is now heavily oversold on a short-term technical basis. The decline was strictly a technical maneuver and unrelated to true, long-term economic or business fundamentals. NASDAQ fell an almost sharp -22.38 points (-0.95%).
NASDAQ remains in a trading range, and hence quite susceptible to any form of "news" that gives traders and short-term speculators to push the market around.
I actually have the inside scoop on why Microsoft's spending will be going up... so that they can pay my salary. Seriously. I spent all day interviewing at Microsoft on Wednesday, and Friday morning they made me a reasonable offer which I accepted.
A big part of Microsoft's decline was due to short-term speculators who had been betting that the stock would get a "pop" due to the upcoming release of Vista. Short-term players are enamored with these "upgrade cycles", but such short cycles are meaningless to true, long-term investors. Short-term players worry about higher spending, but true, long-term investors prefer that the company is making the necessary spending (investment) to assure longer-term success. Wall Street should applaud Microsoft for sticking its neck out to make bold investments in technology. My professional opinion of Wall Street "professionals" continues to diminish. They are not friends of true investors and nothing they say serves to enlighten true investors. They are not interested in enhancing the financial health of true investors, but simply taking as much of their money as possible.
NASDAQ trading volume was very heavy (2.60 billion shares), and breadth was modestly positive, with 1.19 gainers for each loser. This was not a heavy sell-off. The decline was focused on Microsoft and other larger-cap stocks.
The advance estimate Gross Domestic Product (GDP) report for Q1 of 2006 registered a strong annualized real growth rate of +4.8%, up sharply from the final Q4 estimate of 1.7%. This was a very positive report, but may simply have been a rebound from Q4 rather than an indicator of the rate of growth going forward. GDP gives us a rough feel for the overall size of the economy, but is not very useful otherwise. This report gives us no information about the pace of economic growth or inflation going forward, or even in the past month. The annualized gross domestic product is now estimated to be $13.0209 trillion, up from $12.7661 trillion last quarter. The personal savings rate was a negative -0.5% of disposable personal income, down from -0.2% last quarter. Annual nominal GDP growth over the past year was +6.74%. Annual real GDP growth over the past year was +3.47%, with inflation of 3.27%. Annualized nominal GDP growth in Q1 was +8.0%. The implicit price deflator (i.e., inflation) for Q1 was +3.3%.
The Chicago Business Barometer (Chicago PMI) report for April registered a moderate decline, but still suggests a brisk rate of expansion of economic activity. This was a negative report. The Production index rose modestly, and is moderately positive. The New Orders index fell modestly, but still shows a brisk pace of expansion. The Order Backlogs index fell moderately sharply and indicates a moderate pace of contraction. The employment index fell moderately sharply, and now indicates a moderate pace of contraction. The Prices Paid index rose moderately, and is showing strong growth, which is a negative for corporate profits. Please note there is a lot of volatility and that this report covers only one region of the country.
The final University of Michigan Consumer Sentiment report for April registered a modest decline to 87.4 from the initial April reading of 89.2 and a modest decline from the final March reading of 88.9. This was a negative report, but there does tend to be a lot of volatility. Please note that despite the chatter there is no significant correlation between consumer confidence readings and future consumer spending. Consumer confidence reports are definitely interesting from a social perspective, but ultimately they're useless from an economic forecasting perspective.
The ECRI Weekly Leading Index registered no change (at 137.1 vs. -0.3 last week), but the six-month smoothed growth rate fell slightly (-0.1% vs. +0.3% last week), and remains moderately above neutral (+2.9% vs. +3.0% last week). This was a mixed report, and is consistent with the thesis that the economy is simply "fluttering" and undecided about whether to weaken or reaccelerate. I would expect the ongoing recovery to continue to limp along in the coming months (and years). We are still in a relative "soft patch", at least in the sense that the growth rate of the economy is not accelerating at a significant pace. Not everybody recognizes it, but we are still in the recovery phase of an extended business cycle, and it will take another couple of years before the economy is back up to to its true cruising speed.
The AAA Daily Fuel Gauge Report registered a modest rise of +0.2 cents since Wednesday (from $2.927 to $2.929) in the retail price of a gallon of unleaded gasoline, a twenty-sixth rise after a decline after no change after three consecutive declines. This was a negative report. Regular unleaded gasoline is now +42.9 cents above the level of a month ago, +87.5 cents above its May 2004 peak of $2.054, and -12.8 cents below its September 2005 peak of $3.057. Using the rule of thumb that retail prices will tend to converge about 60 to 65 cents above the front-month NYMEX futures price (the so-called "wholesale price"), we could see $2.68 to $2.73 regular unleaded within a couple of weeks if the wholesale price were to remain steady. Retail prices could now fall by -24 to -29 cents in the coming weeks. All of that is subject to dramatic change on a daily basis.
[ * ] Saturday: The AAA Daily Fuel Gauge Report registered a modest decline of -0.3 cents since Thursday (from $2.929 to $2.926) in the retail price of a gallon of unleaded gasoline, the first decline after twenty six rises. This was a positive report.
[ * ] Sunday: The AAA Daily Fuel Gauge Report registered a modest decline of -0.3 cents since Friday (from $2.926 to $2.923) in the retail price of a gallon of unleaded gasoline, a second decline after twenty six rises. This was a positive report. Regular unleaded gasoline is now +39.7 cents above the level of a month ago, +86.9 cents above its May 2004 peak of $2.054, and -13.4 cents below its September 2005 peak of $3.057. Using the rule of thumb that retail prices will tend to converge about 60 to 65 cents above the front-month NYMEX futures price (the so-called "wholesale price"), we could see $2.68 to $2.73 regular unleaded within a couple of weeks if the wholesale price were to remain steady. Retail prices could now fall by -24 to -29 cents in the coming weeks. All of that is subject to dramatic change on a daily basis.
Yes, it's true. I've accepted an offer to join Microsoft out in Redmond as a Software Design Engineer in Test (SDE/T) in their Mobile and Embedded Devices Product Group. My job will be to develop tests and software tools for testing the low-level software that goes into smart phones and similar devices that are based on Windows CE. As a result, I will have absolutely no spare time to do things like writing this column. This will be my last column as I transition back into the mindset of being an employee.
[ * ] The media is finally waking up to the fact that there is more to the lofty price of oil than big oil companies and real supply or real demand. The NY Times had an article entitled "Trading Frenzy Adding to Rise in Price of Oil". The prose is fairly decent, but some of the quotes from people in the commodities trading business are as misleading and off-the-wall as ever. There were some inaccuracies in the reporting as well, but it was remarkably consistent with the information I've gathered informally in recent years. The article mentions hedge funds and pension funds, who are in fact some of the main culprits, but there was no mention of the roles of the big money center banks and brokerage firms in encouraging and profiting from the frenzied speculation. Still, it was finally nice to see the media acknowledge at least a little bit of what I've been saying for some time now.
Commodities were mostly bullish again on Friday. The dollar is above its recent trading range, but not showing any serious signs of heading up to a new high.
[4/22/06] Gold has now clearly broken out, as has crude oil. The euro is trading up in its range, but far from breaking out. Gasoline is up, but still well short of a breakout. Oddly, natural gas is one commodity that is not booming and well off its peak.
[4/20/06] Clearly a lot of commodities have now established that they are in a bull market, but how long they stay in that mode is quite uncertain since economic and business fundamentals don't justify the demand for commodities futures at these price levels and speculation is the driving force. Commodities futures prices are driven primarily by money flows into funds that speculate in commodities.
The Treasury yield curve continues to be very partially inverted, although mostly positively-sloped. This is not a big deal.
There was no change in the odds of a hike to 5.00% in May, a sharp decline in the odds of a hike to 5.25% in June, and a sharp rise in the odds of a cut back to 5.00% late in the year or next year. The market is pricing in a hike to 5.00% in May, a likely hike to 5.25% in June, and a modest chance of a cut back to 5.00% in 2007. The betting on the June hike may be merely an insurance hedge rather than an outright bet, but the June hike looks rather likely.
[3/29/06] I agree with the Fed that high commodities prices are an inflation risk, so a hike to 5.25% in June is now more likely.
[3/31/06] Current market expectations are that the Fed will hike to 5.00% in May, hike to 5.25% in June, and then pause. Stay tuned, as this market expectation can turn on a moment's notice. My expectation is now that the Fed will pause after hiking to 5.25% in June, unless commodities prices pull back dramatically by then or the rest of the economy begins to wobble. If anything, I would be biased higher towards 5.50%.
[4/20/06] The fed funds futures market suggests a quarter-point hike to 5.00% at the May 10, 2006 FOMC meeting, a quarter-point hike to 5.25% at the June 28/29, 2006 FOMC meeting, no hike at the August 8, 2006 FOMC meeting, no hike at the September 20, 2006 FOMC meeting, no hike at the October 24, 2006 FOMC meeting, and no hike at the December 12, 2006 FOMC meeting. Fed funds futures are at best accurate no more than six weeks out, so any longer-term move is purely speculative, at best. The hike at the May FOMC meeting is virtually certain. The hike at the June meeting is very likely, but not as certain. Bets on hikes beyond May are uncertain and may merely be insurance hedges rather than outright bets.
[4/13/06] Historically, 5.25% looks like a comfortable place for the Fed to rest as a neutral level.
[3/31/06] The recent rise in commodities prices will certainly keep pressure on the Fed to continue raising the fed funds target interest rate. I don't think the Fed will target commodities directly per se, but will indirectly under the rubric of "potential inflationary pressures". If commodities haven't fallen back sharply by mid June, expect the Fed to hike even to 5.50% in August. We'll have to see how the commodities speculation craze plays out.
[3/31/06] PIMCO's "Bond King" Bill Gross has posted his latest monthly April 2006 Investment Outlook (IO) letter, entitled "*@?#»! Bond Trading and the Tyranny of Indexation." I haven't read it carefully yet, but it is certainly an interesting rant. It almost sounds as if he's trying to incite an exodus from the U.S. bond market and even from dollar-denominated assets. He says "PIMCO suggests in the near term that a total boycott of the bond market is impractical since non-economic central bank buyers should continue to dominate. We do suggest, however, a strategic boycott of most risk assets based on the reality that an investor is not being paid adequately to hold them, as well as the Greenspan assumption that today’s low risk premiums ultimately lead to future periods that end badly. In turn, we currently suggest a substitution of near cash assets and non-dollar currencies for standard index assets." I'll read his letter more carefully over the coming days. Read his letter yourself and let me know what you think.
[1/5/06] Commodities prices will eventually moderate as higher interest rates gradually take hold and gain traction, but meanwhile, lofty commodities prices are a reality and a real inflationary effect, so the Fed does need to respond to them. That will assure that the Fed runs their interest rate hike campaign up to at least 5% (in May). Whether the commodities speculation binge peters out by Spring is a matter of debate, but it is the mere existence of that debate that will keep the Fed on a hawkish anti-inflation binge. The Fed shouldn't, and doesn't, target asset speculation, but the existence of such widespread asset speculation is an indicator that there is way too much cash (liquidity) sloshing around in the financial system.
[1/26/05] For the most recent rumors about companies that are laying people off, going out of business, shuffling management, or otherwise restructuring, check out F****dCompany.com.
[4/25/06] The Dow Jones VentureOne/Ernst & Young LLP Quarterly Venture Capital Report for Q1 registered a moderate rise (+7.0% vs. -9.9% last quarter) in the amount of money invested from Q4, and a very sharp rise (+18.0% vs. +14.0% last quarter) from Q1 a year ago in equity investment in U.S.-based companies who have received at least one round of venture funding from a surveyed professional venture capital firm. This was a positive report. Please note that these numbers don't include either "angel" investments or "buyouts" or so-called "stealth" investments. Information technology (IT) continues to get the lion share of investment (56%) compared to distant second healthcare (27%). There was a very sharp rise (+17.7% vs. -16.7% last quarter) in the amount invested in information technology companies since last quarter, and a sharp rise (+12.8% vs. -10.9% last quarter) compared to a year ago. Computer software continues to be the largest sub-sector, with 23.0% (vs. 23.1% last quarter) of the money invested in Q1 and 41.1% (vs. 42.7% last quarter) of the IT money invested in Q1, and rose +9.9% (vs. -5.6% last quarter) from Q4 but fell -8.5% (vs. -11.7% last quarter) from a year ago. The bottom line is that a healthy amount of money is being invested in new ventures, but it's not what could be called a real "boom". Later stage deals received 52% (vs. 49% last quarter) of the money and seed and first stage deals received only 21% (vs. 22% last quarter) of the money. The dozen largest deals were: Amp'd Mobile ($150 million), provider of integrated mobile entertainment services for youth, young professionals, and early adopters, ITA Software ($100 million), developer of travel industry pricing and connectivity software, Take Care Health Systems ($77 million), provider of healthcare services in clinics located in high volume stores of national retail pharmacy chains, Microbia ($75 million), developer of drug candidates for the treatment of gastrointestinal disorders, dyslipidemia, pain, and fungal infections, Merrimack Pharmaceuticals ($65 million), discoverer and developer of drugs for the treatment of diseases in the areas of autoimmune disease and cancer, Optasite, Inc. ($60 million), provider of wireless infrastructure solutions, Pay By Touch ($60 million), provider of biometric authentication, payment, loyalty, and membership solutions, Cadence Pharmaceuticals ($53.8 million), developer of specialty pharmaceuticals utilized primarily in the hospital setting, Artes Medical ($50.7 million), developer of medical technology focused on the development of products for the plastic surgery, cosmetic surgery, and dermatology markets, Insulet ($50 million), developer of disposable drug delivery devices for the treatment of diabetes, MovieBeam ($48.5 million), provider of movies-on-demand with instant access to new releases and popular favorites from major Hollywood studios, and Sling Media ($46.6 million), provider of a device that allows people to watch cable and satellite TV on their laptops or cell phones. The survey data was obtained from professional venture capital firms that have invested in U.S.-based early-stage, innovative companies and do not include companies receiving funding solely from corporate, individual, and/or government investors. Please note that there are companies receiving investments who are operating in so-called stealth mode, and don't show up in publicly-available statistics, but it is believed that such investments represent a small fraction of the total professional venture capital investments.
[10/11/04] For some background information on venture capital, click here.
Since I'll have a real job in two weeks, I'll shift over to a more traditional and simplified investment perspective. My initial priorities will be: 1) build up a rainy-day fund of cash that will cover six months of living expenses, 2) max out my retirement plan contributions, 3) max out my Roth IRA contributions, 4) begin a standalone investment plan, and 5) pay down my back taxes. My main focus will be on keeping my plans simple so that much more of my energy will be focused on my work and career than on being a money manager. I'll probably use a simple asset allocation plan of 25% money market mutual funds and 75% S&P 500 index fund or the Tech Sector Spider and rebalance the cash annually (either buy stock with excess cash or sell some stock to preserve profits as cash). I'll cancel (or at least suspend) my current ShareBuilder investment plan since I won't have the cash to fund it in two weeks. I may open a standard account with Fidelity since I'll have a fair amount of excess cash once I get through the next few months. In addition to my contributions, Microsoft will match 50 cents on the dollar for 401(k) contributions up to 6% of my base salary.
Short term, I may have to dump my ShareBuilder investments just to cover expenses until I get my first pay check from Microsoft at the end of May. Microsoft will cover all of my relocation expenses and I get a signing bonus and a nice lump of "relocation cash" in June and temporary housing until I move into a new place, but I have basic living expenses and maybe the cost of a trip back to Washington, D.C. and New Jersey before then.
[4/18/06] Monday was tax day. I mailed my Colorado taxes, so that is now behind me. I'm caught up on my estimated federal taxes, so now I have only my back taxes (federal and New York State) to contend with via installment plans. The bad news is that my rainy-day fund is now virtually empty, coupled with the fact that I have no income scheduled for May. I do have a few job prospects, but nothing close to certainty.
[4/12/06] Unless I find new work within the next week or two, I will have to suspend my investment program and maybe even liquidate my current, very modest investment. Even if I do find work, I may need the proceeds simply to tide me over until my first check. Assuming I get work, my next automatic monthly dollar-cost averaging investment in the S&P 500 Tech Sector Spider (XLK) via ShareBuilder.com will occur on May 9, 2006, the second Tuesday of the month.
The 1-day yield for the Fidelity FPRXX taxable money market fund is up to 4.00% and the FDRXX money market fund for non-taxable retirement accounts is up to 4.49%. There is a lag between Fed rate hikes and money market yields since the money market funds hold debt that will continue to have its original yield until that short-term debt matures and the proceeds are rolled into newer and higher-yielding debt. Sometimes you see declines in the yield, but they may simply be due to people putting fresh money in or taking money out of the funds, which may result in selling higher-yielding securities in some cases. With rates rising every FOMC meeting, it can make sense to leave fresh funds as cash until after the next FOMC meeting, but that can lower the short-term yield. Click here for the top Prime Retail Money Market Funds from iMoneyNet, which says that the average 7-day taxable simple yield is 4.20%, modestly below the average of FPRXX and FDRXX (4.25%). For the month of March my cash earned 3.80% (annualized, up from 3.64% last month) and my Roth IRA cash earned 4.32% (up from 4.13%).
[4/21/06] The ShareBuilder money market fund is called the Bedford RBB Fund (BDMXX) and had a 7-day yield of 3.99%.
[2/7/06] Unfortunately, I won't be able to make any significant contributions to my savings plans for the next two months since I have to resolve my income tax issues. I've negotiated installment payment plans with both the IRS and New York State for my back taxes, so they tie up a hefty chunk of my income. And, I have to come up with cash for my 2005 Colorado state income tax. And, I have to pay a hefty chunk of my back taxes to get below an IRS threshold to avoid having to go through a more lengthy and cumbersome approval process for my installment plan. And, I have to make extra sure that I'm paying all of my Fed and State estimated taxes. And, I'm waiting for the bill from my accountant. And, I don't have any credit cards or lines of credit to fall back on if I lose any income or some other contingencies come up. Other than that, I'm all set. Come April (or maybe May) I should be back on a budget that makes at least a modest savings contribution each month. I'm currently expecting that I can maintain my very modest monthly dollar-cost averaging investment plan with ShareBuilder.com. I'll be making my second investment next week. Unfortunately, my net worth will be negative for at least three or four more years, but at least I'll be solidly on an upwards trend.
[1/3/06] I've decided to restart my automatic monthly dollar-cost averaging investment plan with ShareBuilder.com. I'll continue buying a small slug of the S&P 500 Tech Sector Spider (XLK), but only the very modest amount I had chosen back in July 2004 when I first started the plan. Another change from my original plan is that my investments will be made on the second Tuesday of each month rather than the first Tuesday. My initial reason for this change was simply that it was too late to set up the plan for the first Tuesday of January. The commission is $4 for each monthly investment. I may have to stop the automated plan or maybe increase it, depending how my negotiations with the IRS go on setting up a payment plan for my back taxes. I had considered switching to another ETF, maybe an Internet ETF, but I have enough of a history with XLK to judge it reasonably well. One big, open question is whether Google (GOOG) will be added to the Information Technology sector of the S&P 500 Index. In any case, at least this decision is now out of the way, for now. Incidentally, the 7-day yield for ShareBuilder's money market mutual fund is 3.56%.
[12/27/05] Long before I focus too much of my attention on what stocks (or other assets) to buy, the simple truth is that there are three investment angles that have the potential to reward me far more handsomely than whether I get a return or 2% or 20% or even 200% on stocks over the coming few years: 1) my financial "wealth" is is so small that even the modest amounts of cash that I will contribute each month will dwarf any realistic investment return for quite some time to come, 2) "investing" in my intellectual and business skills (e.g., spending money on courses, seminars, and conferences) could result in opportunities to boost my income far in excess of any realistic investment returns on my meager "wealth" for the foreseeable future, and 3) cutting my expenses and shifting the cost savings into my investment accounts would likely also dwarf my investment returns. So, for now my optimal investment approach may be simply to leave the cash in money market mutual funds, with maybe a modest fraction of it invested in a simple market index fund.
[6/23/05] I continue to have a very, very modest portfolio in two rollover IRA accounts, but not enough to be worth speaking about.
As I wind down this column, my core outlooks remains that NASDAQ will remain in a gradual upwards trend albeit with a fair amount of volatility and a lot periods of trend-less range trading.
[1/3/06] Click here for our Stock Market Outlook for 2006.
[4/21/06] NASDAQ remains in a mini-correction and will remain so until we set both new intra-day and new closing highs for the year on the same day.
[3/30/06] Now that NASDAQ has finally set both new intra-day and closing highs after January 13th (the 3-month milestone for the rally since October 13th), we can finally declare that NASDAQ is in a new bull market off the October 13, 2005 low.
[3/30/06] Technically, NASDAQ is in a rally, within a bull market (since October 13, 2005), within a longer cyclical bull market (since October 10, 2002), within a secular bear market (since March 10, 2000), within the long-term secular bull market.
NASDAQ is in a flat, trading range over a one-month timeframe and in a flat trading range over a 10-day period.
The major advance of NASDAQ off the October 10, 2002 low of 1,108.49 is 7 days off its closing high of 2,370.88 on Wednesday, April 19, 2006, and 5 days off its intra-day peak of 2,375.54 on Friday, April 21, 2006.
The sharp gain of 29.16 points on Wednesday, May 4, 2005 confirmed the new up-leg of the October 2002 advance for NASDAQ that began with the intra-day low of 1,889.83 on Friday, April 29, 2005. This up-leg is now 246 days old, 7 days off its closing high of 2,370.88 on Wednesday, April 19, 2006, and 5 days off its intra-day peak of 2,375.54 on Friday, April 21, 2006.
The sharp gain of +35.24 (+1.71%) points on Wednesday, October 20, 2005 confirmed the new up-leg of the October 2002 advance for NASDAQ that began with the intra-day low of 2,025.58 on Thursday, October 13, 2005. This up-leg is now 131 days old, 7 days off its closing high of 2,370.88 on Wednesday, April 19, 2006, and 5 days off its intra-day peak of 2,375.54 on Friday, April 21, 2006.
The sharp gain of +28.75 (+1.26%) points on Friday, January 6, 2006 confirmed the new up-leg of the October 2002 advance for NASDAQ that began with the intra-day low of 2,189.91 on Tuesday, January 3, 2006. This up-leg is now 76 days old, 7 days off its closing high of 2,370.88 on Wednesday, April 19, 2006, and 5 days off its intra-day peak of 2,375.54 on Friday, April 21, 2006.
The sharp gain of +33.32 points (+1.45%) on Wednesday, March 29, 2006 confirms the new up-leg of the October 2002 advance that began with the intra-day low of 2,132.68 on Monday, February 13, 2006. This up-leg is now 53 days old, 7 days off its closing high of 2,370.88 on Wednesday, April 19, 2006, and 5 days off its intra-day peak of 2,375.54 on Friday, April 21, 2006.
Now that NASDAQ has established itself in a mini-correction, we once again begin looking for a confirmation of the next up-leg of the advance. The potential new leg began with the intra-day low of 2,299.42 on Monday, April 17, 2006. We need to see a confirmation rally of at least 1% on volume higher than the preceding session and at least two days and no more than ten days after the intra-day low. Tuesday was Day 2 with a big gain, but we ignore gains on Days 2 and 3 since they are frequently "dead-cat" relief bounces. Wednesday was Day 3 with a moderate gain, but we ignore gains on Days 2 and 3 since they are frequently "dead-cat" relief bounces. Thursday was Day 4 with a moderate loss. Friday was Day 5 with a moderately sharp loss, but the intra-day low for this leg remains intact. Monday was Day 6 with a moderate loss, but the intra-day low for this leg remains intact. Friday was Day 10 with an almost sharp loss, but the intra-day low for this leg remains intact. Since we've gone ten days without either a confirmation rally or a new intra-day low, the conclusion is that we're still in a trading range. This leg could ultimately be confirmed, but for now it's in the doldrums.
[4/20/06] NASDAQ closed at 2,370.88 on Wednesday, April 19, 2006, at its highest closing level since it closed at 2,425.38 on February 16, 2001. The next older closing high was 2,552.91 on February 15, 2001.
[4/21/06] The NASDAQ intra-day peak of 2,375.54 on Thursday, April 20, 2006 was its highest intra-day peak since the peak of 2,442.99 on February 20, 2001. The next older peaks were 2,457.65 on February 16, 2001, and 2,593.09 on February 15, 2001.
NASDAQ is now bullish on all timescales except the 6-year and 7-year charts (and the 1, 2, 5, and 10-day and 1 and 3-month charts).
[4/29/06] Short-term (1-day): Almost strongly bearish.
[4/25/06] Short-term (2-day): Moderately bearish.
[4/29/06] Short-term (5-day): Modestly bearish.
[4/29/06] Short-term (10-day): Flat, trading range.
[4/29/06] Short-term (1-month): Flat, trading range.
[4/22/06] Short-term (2-months): Modestly bullish.
[4/29/06] Medium-term (3-months): Flat, trading range.
[3/18/06] Medium-term (6-months): Moderately bullish.
[3/16/06] Year-to-Date: Moderately bullish. [NASDAQ closed 2005 at 2,205.32]
[4/25/06] Medium-term (9-months): Modestly bullish.
[1/6/06] Longer-term (1-year): Moderately bullish.
[2/8/06] Longer-term (2-years): Moderately bullish.
[10/22/05] Longer-term (3-years): Moderately strongly bullish.
[3/31/06] Longer-term (4-years): Moderately bullish.
[4/18/06] Longer-term (5-years): Modestly bullish.
[3/2/06] Longer-term (6-years): Strongly bearish. This was the grand finale of the "boom" in 2000.
[3/2/06] Longer-term (7-years): Very modestly bearish. This was the start of the big run-up for the "boom" in 1999.
[10/15/04] Longer-term (8-years): Modestly bullish.
[10/15/04] Longer-term (9-years): Modestly bullish.
[10/15/04] Longer-term (10-years): Modestly bullish.
[1/1/05] The NASDAQ "bubble" (above the 3,000 level, including intra-day "flirtations") lasted from November 2, 1999 through December 13, 2000, a year and six weeks.
[11/28/05] The post-boom bear market that started in 2000 was signaled by the Dow Industrials closing at a high of 11,722.98 on January 14,2000 after hitting an intra-day peak of 11,908,50, by NASDAQ closing at a high of 5,048.62 on March 10, 2000 after hitting an intra-day peak of 5,132.52, and by the S&P 500 closing at a high of 1,527.46 on March 24, 2000 after hitting an intra-day peak of 1,552.87.
[11/28/05] The end of the post-boom bear market that started in 2000 was signaled by the Dow Industrials closing at a low of 7,286.27 on October 9, 2002, with an intra-day low of 7,181.47 on October 10, 2002, by the NASDAQ Composite closing at a low of 1,114.11 on October 9, 2002, with an intra-day low of 1,108.49 on October 10, 2002, and by the S&P 500 closing at a low of 776.76 on October 9, 2002, with an intra-day low of 768.63 on October 10, 2002. Some people claim that the market bottomed in March of 2003, but that is not the case. The intermediate lows in March 2003 attempted to test the market and instead proved that the bear market was over with the Dow Industrials closing at a low of 7,524.06 on March 11, 2003 and an intra-day low of 7,397.31 on March 12, 2003, with the NASDAQ Composite closing at a low of 1,271.47 on March 11, 2003 and an intra-day low of 1,253.22 on March 12, 2003, and with the S&P 500 closing at a low of 800.73 on March 11, 2003 and an intra-day low of 788.90 on March 12, 2003.
The strong Q1 GDP report was just as much a fluke as the weak Q4 report. The economy may moderate a bit, but will likely continue to cruise along, neither booming nor busting.
[4/22/06] The economy seems to be in reasonably good shape, neither booming nor busting.
[4/1/06] Some people are projecting GDP growth of 4.0% for Q1, but some people are also expecting a slowing of growth for the remainder of the year. My current expectation is 3% over the year, but possible dipping as low as 2.5% and rising up as much as 4.5% in any given quarter of the year.
[3/15/06] Although the retail sales report for February was weak, this was probably more of a seasonal effect due to heavy gift card redemptions in January, so the economy is probably in better shape than people think.
[3/9/06] Oddly, there hasn't been any significant news recently that has significantly changed the economic outlook. The economy appears to be cruising along on autopilot, but that's what it is supposed to do.
[3/1/06] Although the latest housing data was weak, retail sales continue to chug along. Everybody knows that housing will moderate to some extent, so there's no (negative) surprise here, yet.
[2/15/06] Although retail sales were strong in January, that may have been due to redemption of gift cards, so we'll have to wait for a couple of more weeks of weekly chain store sales reports to judge the near-term strength of consumer spending. Still, the economy seems to be reasonably healthy and with the prospect of more of the same.
[2/14/06] State and local governments are experiencing a "revenue boom". This is further evidence that the economy is strengthening.
[2/11/06] The not-quite fully inverted Treasury yield curve does not forecast a high probability of the onset of a recession or significant economic weakness. Mostly the inversion reflects a high interest in longer-term fixed debt for reasons like retirement planning that have nothing to do with the short-term economic outlook.
[2/9/06] It is rumored that ex-Fed Greenspan is telling people that the economy is stronger than they think.
[2/8/06] Despite chatter to the contrary, there are no significant signs that the economy might be dramatically weakening in the next few quarters.
[2/4/06] The latest Factory Orders report and Employment report suggest that the economy has some real underlying strength even if there are pockets of apparent weakness.
[1/25/06] Consumer spending is holding up nicely, despite higher energy prices.
[1/19/06] All indications are that the economy is humming along nicely, but probably modestly below "potential" due to ongoing corporate restructuring issues. There is neither any recession nor any runaway inflation detectable either shortly in front of us or at or over the horizon at this point.
[1/18/06] The latest Industrial Production report suggests that the economy remains reasonably strong.
[1/13/06] The challenge for estimating the economic outlook is not so much the overall level of activity, but drilling down to sectors themselves, including business investment, consumer spending, energy production and pricing, transportation activity and costs, supply and demand for commercial real estate, major corporate layoffs, formation of new businesses, hiring by small businesses, etc. I'm not even sure we have any reliable information for much of that at all. It is so much easier to simply say that 2006 GDP growth will be in the 2.75% to 4.25% range (midpoint of 3.50%).
[1/10/06] Financier George Soros has forecast a recession in 2007. That's possible, but too far in the future to try to be accurate about. He (along with a chorus of others) claim vociferously that the Fed has "got to overshoot because they can't stop until the economy shows signs of a slowdown. By the time it shows those signs, it may be a little too late". I and some Fed officials would beg to disagree. I predict that the Fed will pause within a few months (May, actually, and at 5.00%, as opposed to the 4.75% in March that Soros predicts), and that the economy will give all appearances of still being quite strong at that point. The Fed wants to remove the last vestiges of "accommodation", but has no interest in causing a recession. So, why are Soros, et al, so wrong about this? For reasons unknown, they are acting as if the Fed rate hike campaign had started at neutral and was heading up into restrictive territory. If that were the case, the Fed would definitely be looking for a slowdown, since that would be the purpose of the hikes. But, instead, the goal of the Fed's current campaign is to end in the neutral range, which by definition means that monetary policy is neither accommodative nr restrictive, and if it isn't restrictive, then by definition it won't be slowing down the economy. In short, no recession in 2006, and the economy will continue to zigzag along through 2006 at a reasonable clip. As far as a recession in 2007, I think that would require some significant "unhinging" of economic factors that just doesn't appear in the cards. Sure, a housing slowdown might do it, but there is just as likely to be some positive forces developing as well (e.g., positive results from ongoing corporate restructuring and employment gains). And remember that regardless of Fed policy, there is an incredible amount of cash (liquidity) sloshing around looking for all manner of opportunities, so innovation and other aspects of the economy's growth engine won't be restricted at all, maybe not for the next several years.
[1/5/06] I'll withhold further judgment on the strength of the economy until I run across some data that relates to what's going on this month as opposed to last month or the month before. I may have to settle for anecdotal reports such as companies announcing major deals or out of the ordinary hiring plans.
[12/30/05] Hilton Hotels (HLT) says it plans to open 175 to 200 hotels in North America in 2006 and another 15 to 20 hotels internationally. That's impressive and suggests a bit more optimism about the economy in 2006 than I've been encountering lately.
[12/29/05] Despite chatter about a slowdown in the housing sector, I still feel that there are enough "good cylinders firing" in the rest of the economy to get reasonably decent growth in 2006.
[12/23/05] The final Q3 GDP report and the November personal income and expenditures report suggest that there is some real underlying resilience in the economy, despite lofty energy prices, the big hurricanes, and rising short interest rates.
[12/21/05] The latest housing construction report showed the economy humming along nicely, but that's not necessarily a reliable prediction of future economic activity.
[12/16/05] The latest industrial production report showed the economy humming along nicely, but that's not necessarily a reliable prediction of future economic activity.
[12/14/05] The latest monthly retail sales report was mixed and lackluster, but still consistent with a reasonably healthy zigzag economy that continues to plug along on a gradual upwards path.
[12/1/05] Based on the latest economic data and preliminary initial holiday shopping reports, the economy appears to be growing at a moderately strong pace, not truly strong or a real boom, but reasonably decent nonetheless. I expect this pace will continue for the foreseeable future (one to two years), albeit with occasional zigs and zags.
[12/2/05] One of the disturbing readings in the October personal income and expenses report is that savings has been in negative territory for five consecutive months. I'm willing to blame that on elevated oil and gasoline prices, but we need to see savings pop back up into positive territory before we can really say that the economy is truly healthy. The good news is that the savings deficit has shrunk each month since July and shrank from $70.9 billion in September to $61.5 billion in October.
[10/22/05] The recent decline in oil and gasoline prices should help to provide some additional boost to the economy. There is lots of talk about higher heating and electricity bills this winter, but it remains unclear how that drag will really play out.
[10/3/05] Some supposedly competent economists are now actually chattering about the prospects for a recession. Sorry guys, but the odds of a recession over the next year are close enough to zero to suggest that it's not a topic worthy of discussion. These recession-mongers crawl out of the woodwork every time there is even a slight bit of stress on the economy and they are almost always wrong. This time is no different. What these guys do know with certainty is that if they even bring up the "R" word, they get lots of press attention, and that's all they're really after anyway
[9/19/05] The latest economic data continues to support the thesis that the U.S. economy remains in the early stages of a protracted recovery. Some people are talking as if the economy is nearing the end of a business cycle, when we are really only in the early stages of a protracted business cycle. It will be another THREE years before the economy is fully back on track. Unemployment will decline only gradually. Creation of new businesses which will be the titans of tomorrow has yet to even commence, let alone take off. The bankruptcy rate will decline off recent highs (after a temporary blip for the October 17 deadline before the law changes go into effect), but remain at a fairly high level for another two years. There are still quite a number of businesses (and entire sectors) that will need to be restructured over the next two to three years as well. The sad thing is that a number of them don't yet know it or are afraid to admit it. Cost cutting and head count reductions will be ongoing mantras for the next two to three years. That said, there will be plenty of corporations that see increasing profits over the next few years as consolidation boosts their efficiency.
[4/2/05] For the record, we simply are not going to see consistently large payroll employment rises (200K/month or 2.4 million per year) until the vast bulk of "old economy" companies have finally worked their way through the restructuring process, which could be another two or maybe even three years. We still have quite a number of companies "hanging in there", resisting further (and inevitable) restructuring as they wait for the economy to turn up more strongly. This includes the old major airlines, the car companies, retailers, a fair number of technology companies, etc.
[2/18/05] Clearly higher interest rates will have some negative impact on the economy, but the extent of the impact is not so certain. First, the Fed is not trying to constrain demand, but simply getting rid of excessively cheap money that has the potential for causing speculative excesses. In other words, raising interest rates to roughly "neutral" won't cause normal economic demand to decline significantly, but could, for example, help to curb speculation on commodities and foreign exchange. Second, the Fed essentially sets only some short-term interest rates, but the market and the law of supply and demand set longer-term rates. The key factor right now is that there remains a credit glut; corporations remain more interested in trimming their debt load rather than expanding it.
[8/23/04] Clearly the elevated price of crude oil has to have some negative impact on the economy, but the big question is how much impact. Overall, the economy is less sensitive to the price of oil and “oil shocks” than in past decades, but some sectors (such as airlines and chemical companies) are significantly more sensitive, whereas most sectors are only modestly sensitive. The current price escalation in fact has not been caused by any supply shortage or any excess demand by end users, but is merely due to a dramatic level of speculation in crude futures. The bad news is that we don’t know how much longer that speculative ‘bubble’ will continue to grow. The good news is that oil at these prices is not as attractive an ‘investment’, so the speculation will be increasingly susceptible to profit-taking and renewed interest in short-selling. Besides, if oil really were expected to rise dramatically from here, we’d see it in the price of futures in coming years, and we don’t. In fact, futures ‘predict’ that the price of crude will decline in coming years. In any case, elevated oil prices will be a moderate drag on the economy, but not so much as to spur accelerating inflation or to trigger a recession. Maybe it will trim a quarter to half-point off GDP, but that’s about it. Besides, people and businesses will adjust their lives and operations to further reduce their dependence on expensive oil. And finally, high-efficiency hybrid-electric vehicles are beginning to debut and anxiety over the price of gasoline will simply accelerate the development and introduction of such innovative products, which will dramatically moderate the demand for oil a few years from now.
[5/21/05] I heard that Greenspan says oil prices may be taking 0.75% off of GDP, but prices have risen significantly since last August.
[7/6/04] Some people are protesting that company profits could suffer as companies run out of costs that they can cut. That’s complete nonsense. First, companies will never run out of costs to cut. But more importantly, one of the factors that has been holding back growth of business revenues (and profits) over the past three years is the fact that companies have been dramatically cutting costs and the cutting of a cost for one company is the cutting of the revenue of one or more other companies. That cost-cutting binge was exerting a distinct headwind on businesses, but that headwind will in fact fall off as the cost-cutting moderates. And as revenues begin to grow more strongly, companies will begin to reverse the process and both spend more and hire more workers. Continued technological advances will spur further cost-cutting, but on a more moderate basis.
[12/29/03] The two key factors driving the pace of the recovery will continue to be the ongoing process of shutting down or restructuring ‘problem’ businesses and the pace of the formation of new businesses which will create new jobs.
[3/12/05] A continuing big wildcard in 2005 will be the possibility of a new wave of corporate cost-cutting as companies burn through the easy part of revenue growth and are forced to revert to cost-cutting to keep up earnings growth. The problem is that one company’s cost is another company’s revenue or an employee’s income, so more cost-cutting can boost earnings in the near-term but risk putting intense downwards pressure on business spending and employment. This cost-cutting process will moderate once companies begin to build up a deep enough backlog of unfilled orders so that they can keep revenue growth at a consistently strong pace to keep earnings growth up. The economy will survive this process, but the zigging and zagging of the pace of the recovery will continue.
[9/1/03] Our Tech Stock ‘Safe’ Signal is still stuck at 0.00 (no safety) since none of the big tech companies are even hinting that they are seeing any significant improvement in demand. There does seem to be some sense of stabilization and a modest hint of improvement, but no clear and decisive indication of a dependable ramp up in revenues and earnings.
[1/13/06] Obviously, Apple (AAPL) has been doing quite well, but they don't seem to represent the rest of the tech sector.
[2/9/06] Google (GOOG) is another atypical tech stock.
[5/25/02] DISCLAIMER: I cannot and do not offer any recommendations of stocks to buy or sell. I may on occasion discuss companies that I am considering or myself have bought or sold, but the reader must do their own research before making their own purchase or sale decision. It is never a good idea to buy a stock just because someone else tells you to or even merely mentions a company in a favorable light.
-- Jack Krupansky -- The Unrepentant Optimist (Click here for Jack's Bio)
Updated: June 05, 2006 02:12:54 AM -0400
Copyright © 2006 John W. Krupansky d/b/a Base Technology